Culture & Entertainment

What you need to know about the Home Buyers' Plan

Culture & Entertainment

What you need to know about the Home Buyers' Plan

With March 1 fast approaching, many Canadians, including myself, are thinking about making tax-saving RRSP contributions. I never contributed to an RRSP in previous years. But with plans to buy a house in the coming years, I've finally opened a plan. Here's why I'm investing in my future.
The Home Buyers' Plan A Canada Revenue Agency program aimed at first-time homebuyers, the
Home Buyers' Plan (HBP) allows Canadian residents to withdraw up to $25,000 from an RRSP fund to put toward buying or building a qualifying home. Unlike withdrawals made under other circumstances, funds taken out under the plan are 100 percent tax-free. The one catch? Those who take advantage of the HBP must repay those withdrawals over the course of 15 years, starting two years after your withdrawal. (Each year, you're expected to pay back one-fifteenth of the withdrawal.) If an annual payment is missed, that amount is deemed taxable income for the year.
HBP conditions In order to qualify for the plan, applicants must meet the following criteria:

You must be a resident of Canada

You must be the RRSP owner, and the plan cannot be locked (check with your issuer)

You must be a first-time homebuyer

You need to have entered into a written agreement to buy or build a home

You can't own the home for more than 90 days before withdrawing the funds

The home must be your principal domicile, or it can be the residence of a disabled relative (should that person meet the conditions)

The benefits of tax-deferment Firstly, RRSPs allow you to
reduce your yearly taxable income by the amount that you contribute to your plan. While that money will eventually be taxed upon non-HBP withdrawals, those additional dollars can be put away for the down payment on your first home, almost like an advance. That also means your
extra savings will earn interest, dividends or capital gains for the time that it's invested, putting more money in your pocket, sooner. Ready to get started? Visit the Canada Revenue Agency for more information on the HBP, or learn more about RRSPs
here.
(Photo courtesy StockMonkeys.com)